Yahoo falls after posting Q4 results

Portal ends year of 'harvest' and extends MSN deal

BambiFrancisco

SAN FRANCISCO (CBS.MW) -- Yahoo shares fell 4 percent Thursday, a day after the online media giant released holiday-quarter results and a 2004 outlook that were not as upbeat as expected.

Yahoo
YHOO
lost $2.06 to $46.33. Shares have declined each day this week.

"Yahoo continues to execute very well, but to guide quite conservatively," wrote Jordan Rohan, an analyst at SoundView Technology Group.

Late Wednesday, Yahoo said it earned a fourth-quarter profit of $75 million, or 11 cents a share, up from $46.2 million, or 8 cents a share, in the year-earlier period. Analysts surveyed by Thomson First Call expected 11 cents per share, on average.

Yahoo handily beat the average revenue expectation of $495 million, but fell shy of the highest projection of $515 million. Yahoo also fell short of the highest profit expectation of 13 cents. Results this year included Overture Services and its paid-search operations; the acquisition of that company closed Oct. 7, 2003.

The results, as well as Yahoo's outlook for 2004 weighed on Yahoo shares.

Going forward, Yahoo said it expected to generate cash flow between $710 million and $800 million and revenue between $2.12 and $2.25 billion. Both goals are in the range of analysts' expectations.

Given the gains in Yahoo's shares ahead of results, investors expected more upside to take the stock higher. Many investors are opting to wait until more Net and media companies before making an investment decision.

Yahoo shares had risen from $40 in mid-December to $50 just ahead of the earnings release. In 2003, Yahoo rose 173 percent.

While the return was stellar, Yahoo's performance was just as impressive, as the portal saw some fruits of its labors.

In 2002, Yahoo was active in "planting seeds for growth," he continued. Last year was the year during which Yahoo "harvested the initial results of our efforts."

Yahoo ended the year with $1.625 billion in sales. It's the first time sales topped a billion since 2000.

For the year, marketing services, which include paid-search or sponsored listings and branded advertising, was $1.19 billion, or 73 percent of Yahoo's total revenue.

Fee revenue, which include Net access fees from Yahoo's joint venture with broadband partners SBC Communications and BT, as well as Yahoo's online dating service and e-mail services, was $298.2 million for the year. Listings revenue, which is primarily driven by Yahoo's online job marketplace, HotJobs, was $127.2 million.

Also on the call...

A positive announcement came from the conference call following the release.

On the call to Wall Street analysts, Semel said that Yahoo's Overture expanded its relationship with Microsoft's
MSFT, -2.19%
MSN to include all of Europe and Korea. Microsoft's MSN was a big contributor to Overture's business.

Some observers expect the MSN relationship to be vulnerable as Google may raise its efforts to drive more advertising in preparation for a public offering this year.

Semel did reiterate that Yahoo planned on using its own algorithmic search product soon. "Yahoo will be using its own algorithmic search some time during the first quarter," he said.

Regarding Yahoo's search plans, Yahoo's chief operating officer, Daniel Rosensweig, said that Yahoo had a "robust calendar of features and new opportunities we plan to roll out over the course of the year."

In November, about 28 percent of all U.S. searchers were on Yahoo sites, according to ComScore data. But Yahoo's share was below Google's market share of 35 percent.

Yahoo CFO Susan Decker said Yahoo expects to end 2004 with 7 to 7.5 million in paid relationships, up from 4.9 million in 2004 and 2.2 million in 2003. The bulk of those paying relationships come from access fees Yahoo generates by providing content and services to SBC Communications
SBC, -0.41%
subscribers. Decker said Yahoo expects those paying relationships to be generating about $3 to $5 a month.

Semel said he expected greater growth from the company's relationship with BT in Europe and Yahoo's online dating service. Semel also said that the company is focused on China as an area of growth. Last November, Yahoo purchased search Chinese search start-up 3721 for $120 million. See full story.

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